Global balance puts Coca-Cola on track for 2020

February 28, 2012
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by Keith Nunes

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In late 2009, the Coca-Cola Co., Atlanta, issued its Vision 2020, a roadmap for doubling the company’s revenues by the year 2020, increasing the number of annual “servings” it sells to three billion, and improving the company’s overall efficiency. Two years into the program, despite a difficult global economy, company executives have expressed confidence it is on track to meet its goals.

Key components to the strategy have been to expand the company’s presence in emerging markets and expand its product portfolio in the United States. On Feb. 7, the company issued its financial results for fiscal year 2011. Restructuring costs and other charges as well as a difficult comparison with the previous year due to a benefit from buying its bottlers led to a 27% decrease in income for the company.

For the year ended Dec. 31, 2011, the company had income of $8,572 million, equal to $3.75 per share on the common stock, which compared with income of $11,809 million, or $5.12 per share, during the previous year. Net operating revenue was $46,542 million, up 33% from $35,119 million during fiscal 2010.

“Today, I am pleased to share that The Coca-Cola Co. continues its momentum toward realizing our 2020 Vision, with stronger brands, clear strategies and well-focused execution to drive further growth,” said Muhtar Kent, chairman and chief executive officer. “We once again achieved financial results for both the year and the quarter in line with, or ahead of, our long-term targets, with quarterly volume and revenue growth in every one of our five geographic operating groups. Importantly, we also continued to increase our global volume and value share in 2011.

“Even as we believe that global market volatility will continue in the near term, the breadth of our global footprint and the strength of our brands create a resilient business that was built for times like these. As we enter into the third year of our 2020 Vision, our roadmap for winning together remains clear. The assumptions that shaped our 2020 Vision have not changed. Our expectations for long-term, sustainable and balanced growth across emerging and developed markets have not wavered. And we will continue to make significant investments in our future all around the world to support the tremendous opportunity we see in nonalcoholic ready-to-drink beverages, one of the fastest growing segments in consumer packaged goods.”

In a conference call with financial analysts on Feb. 7, Mr. Kent noted that for the full year in fiscal 2011, the company delivered almost 1 billion unit cases in incremental volume growth, “or the equivalent of adding another Japan to our business,” he said.

The balance in the company’s strategy was demonstrated by the fact it achieved positive full-year growth in developed markets like North America, Japan and Germany as well as in emerging markets like China and India.

“What we see is that the industry has been growing very well, both in terms of volume and value over the last several years and projected to continue to do that through 2020, with personal consumption increasing 80%, from $40 trillion to $71 trillion,” said Gary Fayard, executive vice-president and chief financial officer for the company, during a presentation at the Consumer Analyst Group of New York conference, in Boca Raton, Fla., on Feb. 22. “And if you think about what’s happening across the world with demographics, with the growth of the middle class, with urbanization, it’s driving this personal consumption growth, and we’re in the best place to leverage our position to capture that growth across the world.

“(We have a) very diverse portfolio, and we are ready to capture it. If you look at how we are geographically dispersed, about 43% of our business is coming from developed markets; 37% coming from developing markets; and then 20% coming from the emerging markets. The interesting thing is while we have great presence in each of those, different types of markets, they are growing at different rates, obviously. Our projections would say that by 2020, the three parts of the pie will be approximately equal as we continue to grow the business across the world.”

Notable events for the company during fiscal 2011 included the announcement of plans to invest $3 billion to develop the company’s presence in Russia during the next five years and $4 billion in China during the next three years.

The roll-out of the Coca-Cola Freestyle beverage dispensing system throughout the United States also took place in fiscal 2011, as food service chains such as Burger King, Noodles & Co. and Moe’s Southwest Grill began introducing the systems. The Freestyle system allows consumers to choose from over 100 beverage selections from a single dispensing machine.

Creating a more efficient and lean organization is also a focus for Coca-Cola. In 2011, the company completed a four-year global productivity program that achieved annualized savings of $500 million. In early February Mr. Kent announced a four-year productivity and reinvestment program that the company expects to achieve between $550 million and $650 million of savings by 2015.

“We remain relentless in our efforts to become more efficient, leaner and adaptive to changing market conditions, while at the same time building a continuous improvement and cost management culture in keeping with our 2020 Vision,” Mr. Kent said.

The productivity program will focus on improving global supply chain optimization, marketing and innovation effectiveness, operational improvements and standardization throughout the company’s information technology infrastructure.

While the company focuses on increasing volume throughout the world and improving productivity, it is also facing the same input costs headwinds as the rest of the food and beverage industry.

“As we look ahead to 2012, we anticipate the underlying commodities related to these inputs will remain somewhat pressured, driven primarily by increases in the cost of juices and sweeteners,” said Mr. Fayard, during the early February earnings conference call with financial analysts. “As a result, we expect the full-year 2012 incremental impact of commodity costs on our results to range between $350 million and $450 million. Having said that, we believe we have the right strategic plans in place to mitigate the impact of these incremental commodity costs and remain confident in our ability to achieve our long-term growth targets.”

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